Graeme Wearden 

UK mortgage approvals hit 13-year high; German inflation falls below zero – as it happened

New mortgage approvals surged to 84,700 last month, as German harmonised inflation drops to -0.4%
  
  

The number of mortgage approvals made to home buyers jumped to its highest levels since 2007 in August, the Bank of England reports
The number of mortgage approvals made to home buyers jumped to its highest levels since 2007 in August, the Bank of England reports Photograph: Andrew Matthews/PA

So, with the markets becalmed ahead of the first presidential debate , it’s time to wrap up.

Here’s our news story on the surge in mortgage approvals:

And here’s all the latest on Covid-19.

Back tomorrow! GW

Updated

Another day.... another comment from the Bank of England about the merits, or otherwise, of negative interest rates.

This times it’s governor Andrew Bailey, who has told Queen’s University Belfast that he doesn’t rule them out... but he also recognises that negative rates are a ‘mixed bag’ that would create extra challenges for the banking system.

Bailey also reiterated that the BoE had not yet reached a judgment on whether or when to use sub-zero rates for the first time.

The BoE does seem to be split on the issue of cutting Bank rate below zero. Over the weekend, policymaker Silvana Tenreyro suggested they could play a role, only for deputy governor Dave Ramsden to argue yesterday that rates can’t be cut any lower...

Here’s more highlights from Andrew Bailey’s speech:

US consumer confidence surges back

US consumer confidence has rebounded strongly this month, and by more than expected, households’ views of the labor market improved.

The Conference Board’s monthly consumer confidence index has surged to 101.8 for September, a significant improvement on August’s 86.3.

However, that does leave consumer confidence below its pre-pandemic levels....

Kudlow: US V-shaped recovery is intact

One of Donald Trump’s top economic advisers has claimed that the US economy is still enjoying a V-shaped recovery from the pandemic.

Larry Kudlow, director of the US National Economic Council, pointed to strong figures from the housing sector, the auto sector, and machinery output figures. Retailing also looks very strong, he told CNBC, citing strong credit and debit figures indicating consumer spending is robust.

Kudlow insists:

I can’t predict the virus....but we’re not going to shut down the economy.

The V-shaped recovery is very much intact.

Kudlow is right that housing demand has certainly bounced back, with sales hitting a 14-year high.

But the latest US factory PMI did show a small growth slowdown, and over 800,000 Americans are filing new unemployment claims each week. So the economy certainly hasn’t fully recovered from Covid-19.

Wall Street subdued ahead of presidential debates

The New York exchange has opened, but there’s not much drama on Wall Street.

Stocks are rather flat, as investors hunker down ahead of the first presidential debate tonight (or overnight, if you’re in Europe).

The Dow Jones industrial average has ticked down by 0.15%, losing 41 points to 27,542.

The S&P 500 is flat, while the tech-focused Nasdaq has gained 20 points, or 0.18%, to 11,137.

The revelation that Donald Trump only paid $750 in federal income tax in 2016 has added extra spice to the debate -- as investors brace for some turbulent weeks.

Craig Erlam of OANDA sums up the mood:

Joe Biden still has a healthy lead and therefore everything to lose, while the debating stage surely benefits President Trump as he looks to close the gap. The New York Times expose on Trump’s tax affairs will certainly add extra spice to the evening, with the President going into the debate on the backfoot, meaning he’ll probably come out all guns blazing.

We’re just over a month away from what is going to be an election for the ages. Covid has turned the election on its head. A year ago, Trump had it in the bag. Now he has a significant deficit to make up and already election day is surrounded in controversy. A tightening of the polls over the next month will only add to the drama.

Covid crisis watch: UK economy nears 'perilous turning point'

The Guardian’s latest analysis of the UK’s economy is out, and it shows that growth was already faltering before the latest Covid-19 restrictions were imposed.

In recent weeks, road traffic has cooled after a summer rush, share prices have fallen, redundancies have soared and the national debt has hit a new record high. But... retail sales have picked up, and the Eat Out to Help Out scheme has lifted spending...and pushed down inflation.

So, with Covid-19 cases rising and the furlough scheme wrapping up soon, it’s a perilous time for the economy.

Here’s the full report:

The slump in German harmonised inflation to -0.4% this month shows that Covid-19 has a disinflationary impact on economies, says Carsten Brzeski of ING.

He writes:

The negative base effect from low energy prices is keeping headline inflation low but there is more: the VAT cut of July is most visible in prices for food, clothing, other consumer goods and increasingly also for other leisure activities and packaged holidays. At the same time, the fact that the increase in hotel and restaurant prices is still very much in line with the trend seen prior to the VAT cut suggests that lower taxes are also used to support businesses and are not necessarily entirely passed on to consumers.

Looking ahead, German headline inflation should first fall further before gradually rebounding next year; at least if the German government sticks to the plan of reversing the VAT reduction in January. In July 2009, headline inflation came in at -0.7% YoY; a record which could be broken in October or November.

At the start of the crisis, there had been speculation about whether this current crisis would be an inflationary or deflationary event. For the time being for Germany, the conclusion is crystal clear: it is disinflationary.

Updated

Germany inflation turns negative amid Covid-19 pressures

Germany’s inflation rate has fallen below zero, piling more pressure on the European Central Bank to stimulate the eurozone economy.

Consumer prices across Europe’s largest economy were 0.4% lower in September compared with a year ago, when harmonised with the rest of the EU. Prices also fell by 0.4% on a monthly basis, the Federal Statistics Office reports.

That’s a sharper fall than expected, with economists forecasting a 0.1% drop on both measures.

The fall is partly due to Germany’s VAT cut (to encourage spending). Cheap energy is another factor, with crude prices much lower than a year ago.

Here’s some snap reaction:

Updated

Lunchtime summary

Time for a quick recap..

Mortgage approvals in the UK have hit their highest level since the credit crunch nearly 13 years ago.

Around 84,700 house purchase loans were approved in August, the busiest month since October 2007, according to new Bank of England figures. That’s up from around 66,000 in August, and much more than expected.

Estate agents reported that August had been unusually busy, thanks to pent-up demand following the lockdown and the current stamp duty holiday. However, first-time buyers still face high hurdles, with lenders clamping down on high LTV mortgages.

Several UK companies have reported a slump in business due to the pandemic. Baking chain Greggs is consulting staff on cutting their hours, after September takings were barely three-quarters of last year’s levels.

Greggs is also putting more items back on the menu (good news for Belgium bun lovers), and still planning to open some more stores - but typically in out-of-town locations rather than high streets.

The City isn’t impressed, though -- Greggs shares are now down almost 8%.

Greeting card and gift seller Card Factory slumped to a £22m loss due to the lockdown, while sweet treats supplier Hotel Chocolat lost £7m after missing out on Easter high street sales.

Airport services group John Menzies warned that market conditions will remain challenging through the winter.

On the economic front:

Updated

Markets down after cautious morning

After a rather subdued morning, Europe’s stock markets are mostly showing small losses today.

The FTSE 100 is now down 25 points, or 0.3% , at 5902 , with banks and travel companies among the fallers.

This morning’s cautious financial results from companies such as Greggs has dampened the mood, says Fiona Cincotta of City Index:

Monday’s upbeat mood has been replaced with a sense of caution, sending European bourses lower. The optimism surrounding a US fiscal stimulus deal has been faded, with the mood souring amid a slew of disappointing corporate releases....

Greggs warned over an uncertain trading outlook, which is hardly surprising given that work from home looks set to be a way of life at least for the next 6 months if not longer. Job losses and reduced hours are coming. The bottom line with Greggs is that the headwinds are outweighing the positives.

Germany’s DAX (-0.44%) and France’s CAC (-0.2%) are both down too, after some very strong gains on Monday... and ahead of the Trump-Biden debate overnight....

Back in the City, Greggs has sunk to the bottom of the FTSE 250 index - amid worries about its prospects for the coming months.

Shares are now down 6% at £11.45, closer to last week’s two-year low, after the baking chain reported that September sales are only three-quarters of last year’s levels.

Despite Greggs’ plans to cut staff costs and open more stores, investors seem anxious about future trading.

Russ Mould of stockbroker AJ Bell says Greggs is trying to return to normality - but remains vulnerable to the pandemic.

“Greggs has taken the decision to press ahead and try get its operations back to normal. New store opening plans have been revived and some existing stores are now allowing customers to eat in. Cake fans will rejoice at the news that the Belgian bun is being reintroduced alongside other items which have been absent while Greggs survived on a limited menu during the peak of the crisis.

“These actions could put Greggs in a stronger position assuming the coronavirus situation doesn’t worsen. If it does, the retailer will have to quickly revert to its skeleton operations. The bad news for staff is that Greggs is looking at reducing costs by having reduced working hours in shops.

“There remains the risk that recent positive trading momentum cannot be sustained. With the weather turning cold and rainy and unemployment expected to rise, conditions are not favourable for consumer wanting to go out and shop. Local lockdowns also place barriers in the way of Greggs’ recovery efforts.”

Over in Ireland, the jobless rate has fallen back from its recent record peak - but remains painfully high.

Reuters has the details:

Ireland’s unemployment rate, including those receiving temporary COVID-19 jobless benefit, fell to 14.7% at the end of September from 15.3% a month earlier, data showed on Tuesday.

The jobless rate, which stood at 4.8% before the crisis, hit a record 28.8% in early May after 600,000 people claimed the special payment.

Excluding the COVID-19 payments, which are due to expire next April, the unemployment rate rose to 5.4% in September from 5.2% in August, Central Statistics Office data showed.

Eurozone sentiment improves

Meanwhile in the eurozone, economic confidence has improved for the 5th month running, but remains weak.

The European Commission’s monthly gauge of sentiment in the euro area has risen to 91.1 points this month from 87.5 in August.

That’s ahead of forecasts (for a rise to 89.0) but still weaker than before the pandemic.

Confidence picked up in the service sector, despite the increase in Covid-19 cases over the summer which is forcing new restrictions to be imposed in some countries.

The service sector confidence index jumped to -11.1 from -17.2, while industrial confidence increased to -11.1 from -12.8.

The European public are a less gloomy too, with the consumer sentiment index rising to -13.9 from -14.7.

Despite the surge in mortgage approvals, it’s hard to get onto the property ladder.

Some lenders have withdrawn some mortgage offers aimed at those with small deposits, while Nationwide is restricting people from borrowing from their parents.

Matthew Fleming-Duffy of independent mortgage broker Cherry Mortgage & Finance, says it’s tough for first-time buyers, who typically need to borrow most of the purchase price (with a high loan-to-value or LTV mortgage).

“Mortgage industry stakeholders, from banks and building societies to solicitors and surveyors – still have furloughed staff and are operating under safe working conditions. In other words, while case loads are higher, lenders’ capacity to function is currently subdued.

“Product choice is still limited, particularly at higher LTVs. There are only a handful of mortgage lenders offering products at 90% LTV, with some singling out First Time Buyers for exclusive eligibility and others only providing guarantor loans.

The summer is usually a quiet time for estate agents and lenders, as people are more interested in summer holidays than property viewings. But not this year....

The Covid-19 pandemic “completely upended” the UK property market in August, says Hina Bhudia, partner at Knight Frank Finance:

Interest rates remain ultra-low and the cheap cost of debt is driving a significant amount of this activity.

“Most of the activity we’re seeing is at sub 75% loan-to-value and the lenders all want a bigger slice of that market. That means the choice of products for borrowers at that level is growing every day.

“The surge in transactions at that level also means turnaround times between submitting an application and getting approval varies hugely from lender to lender so borrowers should check carefully before proceeding.

“Remortgaging remains subdued as many borrowers choose to play it safe, often sticking with their existing bank and avoiding taking on more debt, particularly when so many consumers’ incomes have been affected.”

Here’s some snap reaction to the UK mortgage figures:

Bank of England: Mortgage market recovering

The Bank of England points out that mortgage approvals are still lower in 2020 than in 2019, despite a sizzling August.

Today’s report says:

The mortgage market continued to show more signs of recovery in August. On net, households borrowed an additional £3.1 billion secured on their homes, following borrowing of £2.9 billion in July. Mortgage borrowing troughed at £0.5 billion in April, and is still a little below the average of £4.2 billion in the six months to February 2020. The increase on the month reflected slightly higher gross borrowing of £18.8 billion, although it is still below the pre-Covid February level of £23.7 billion.

The number of mortgage approvals for house purchase continued increasing sharply in August, to 84,700 from 66,300 in July.

This was the highest number of approvals since October 2007 but it only partially offsets weakness seen between March and June. In total, there have been 418,000 approvals in 2020, compared with 524,000 in the same period in 2019.

UK mortgage approvals highest since 2007

UK mortgage approvals have hit a near-13 year high in August, as the market bounced back from its lockdown blues.

At 84,700, lenders signed off more home loans than at any time since October 2007 (when the credit crunch began, at the start of the financial crisis).

However, consumer borrowing was more subdued, and only rose by £300m last month. That shows some households are being cautious, with fears of a spike in unemployment this winter.

Updated

The surge in mortgage approvals in August is also due to pend-up demand, as the market froze during the lockdown.

Here are some details:

UK mortgage approvals jump

Just in: the number of mortgages approved in the UK has surged.

New Bank of England figures show that around 84,700 loans to fund a house purchase were approved in August. That’s a sharp jump on July, when around 66,000 mortgages were signed up, and much higher than the City expected.

It suggests that the current suspension on stamp duty for purchases under £500,000, and record low interest rates, are spurring demand.

This may also be driven by some households looking to move to a larger home, perhaps outside of the city, following the move to home working this year.

Updated

High end confectionary chain Hotel Chocolat has also been dragged into the red by the Covid-19 crisis.

Hotel Chocolat made a pre-tax loss of £7.5m in the last financial year (to 28th June), down from a profit of £14.1m a year earlier.

Revenues fell by 14% in January-June, as the company was forced to shut stores during the pandemic. This hit sales during the crucial Easter period, although a jump in online sales cushioned the damage.

Chairman Andrew Gerrie tells the City:

Having delivered a strong first-half performance, the second half of the year was materially disrupted by COVID-19 and the related restrictions, which led to the closing of all UK retail locations for 12 weeks, and the shutdown of our factory for eight weeks.

Here’s our news story about Greggs’ plan to cut its wage bill:

Shares in Greggs have dropped by 3% this morning, after it warned that it needs to cut staff hours due to weak demand.

They’ve lost 38p to £11.83, taking them back towards the two-year low of £11.17 hit last week.

David Madden of CMC Markets says Greggs’ business does seem to be improving, though, having recently teamed up with Just Eat and launched a click-and-collect offering.

Sales at company managed stores in September were 76.1% of last year. The group re-opened all its stores in early July, sales ticked up in August, and they improved again in September. Greggs cautioned about the uncertainty surrounding the health crisis, but it plans to open net 20 stores this year, so it clearly isn’t that worried about the current environment.

The digital service and the click and collect options are now available nationwide so this should help the group in the event of localised lockdowns. The manufacturing sites have re-opened too so new products are available.

FTSE drops in early trading

Britain’s blue-chip stock index has dropped back in early trading.

The FTSE 100 has shed 27 points, or 0.5%, knocking it back to 5,900.

UK companies badly hit by the pandemic are leading the fallers, with airline group IAG down 2.5% and jet engine maker Rolls-Royce losing 2.6%.

Hotel chain Whitbread (-1.5%) and high street retailer Next (-1.6%) are also in the Footsie fallers, along with property group Land Securities (whose offices are in less demand during the lockdown).

European markets have also dipped after surging on Monday, with the Stoxx 600 down 0.3%.

Greggs has also “reactivated” parts of its expansion plans.

It now expects to open a net 20 shops in 2020, predominantly in locations accessed by car.

Greggs has also revealed that two of its factories have been hit by two Covid-19 outbreaks in recent weeks.

It says:

In August our supply chain team dealt with a small COVID-19 occurrence at our distribution centre in Leeds and worked closely with Leeds City Council and Public Health England to handle the situation swiftly and professionally. There was some impact to product availability in the region over a five-day period but this was minimised through support from other sites in the network.

In the past week we experienced a further occurrence at one of our manufacturing centres in Newcastle upon Tyne. As a precaution this production operation was temporarily closed, although stock distribution is unaffected.

On Sunday, we reported that Covid-19 infections at food factories could be much higher than officially reported, as some companies weren’t reporting outbreaks.

Greggs is hoping that Belgian buns can boost sales.

The baking chain has put these sweet, sultana-packed, iced buns (with a cherry on top) back on the menu, to encourage shoppers into its stores again.

With our seated offer closed we were not in a position to participate in the Government’s ‘Eat Out to Help Out’ scheme and this, along with high temperatures made August a difficult month.

Increased out-of-home activity in September appears to have driven a recovery in customer visits. In response to this we are bringing back more of our product range, including a broader sandwich range and classic favourites such as Belgian buns.

Introduction: UK firms warn of Covid-19 pain

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

A swathe of UK companies are reporting today that Covid-19 continues to hurt their businesses, more than six months after the UK first imposed restrictions to battle the pandemic.

High street baker Greggs has warned that staff faced reduced hours, and potentially job cuts, as it tries to cut its employment costs.

Greggs, famous for its steak bakes, sausage rolls and new vegan offerings, reports that like-for-like sales in September are only 76.1% of the 2019 levels (an improvement on a ‘slow’ August).

With the government’s furlough scheme wrapping up in a month (replaced by a less generous wage subsidy package), Greggs says it must make cuts:

With business activity levels remaining below normal for the foreseeable future we must change the way we work to be as productive and flexible as we can in order to protect as many jobs as possible for the long term. We have completed a review of our activity and requirements in every part of the business and are now proposing a series of changes which are the subject of a collective consultation with union and employee representatives.

Our aim is to minimise the risk of job losses by negotiating reduced hours in our shops and we will update on the outcome of the consultation when concluded.

Greggs certainly isn’t the only high street firm struggling. Card Factory, which sells gifts and cards, has just posted a pretax loss of over £22m for the six months to July 31.

Card Factory also warned it can’t give any financial guidance for the next six months, due to uncertainty over the virus.

With the crucial Christmas trading period looming, Card Factory explains:

Recovery in the retail sector remains sensitive to spikes in Covid-19 cases and potential local or national restrictions, creating uncertainty about customer footfall and shopping habits.

It is also too early to determine whether basket mix and average spend patterns, in-store and online, will continue or settle back to pre-Covid-19 levels.

John Menzies, which operates ground handling and aeroplane refuelling services at UK airports, has had an (understandably) torrid time too. It has just reported a loss of over £80m for the first half of 2020, due to the plunge in passenger traffic.

Executive chairman Philipp Joeinig says the company has experienced an unprecedented situation this year:

The spread of Covid-19 has precipitated the imposition of an unprecedented level of travel restrictions by governments across the world severely impacting the aviation industry.

These restrictions have affected the Group’s revenue from the ground handling and into-plane fuelling services in particular. Volumes across all product categories were down compared with the first half of 2019: ground handling turns down 50%, cargo tonnage down 22% and fuelling events down 41%, as was to be expected with the dramatic reduction in flights.

Looking ahead, Joeinig predicts that conditions will remain tough for some time, given the slump in demand for air travel.

He told shareholders:

We currently anticipate market conditions will remain challenging through the winter and the early part of next year, but expect a sustainable recovery in activity levels thereafter, contributing to modest revenue growth in 2021 over 2020.

Whilst cautious on the pace of activity level recovery over the next 18 months, our restructured cost base and the rationalisation of the global portfolio should enable the Group to generate higher returns as volumes improve.

Also coming up today

The latest UK mortgage approvals figures are expected to show a surge of lending in August, as people take advantage of the current stamp duty holiday

European stock markets are expected to be subdued today, after their best session since June on Monday. Investors are cautious ahead of tonight’s US presidential debate between Donald Trump and Joe Biden.

Jasper Lawler of London Capital Group says that the markets are currently banking on a Biden win, so there could be volatility if Trump performs well:

A big upset by Trump could unearth some market volatility as investors re-price a possible Trump second term - or maybe worse - a contested election result and even bigger delays until the next stimulus package gets passed.

The agenda

  • 9.30am BST: UK mortgage approvals for August - expected to rise to 71,000 from 66,300
  • 10am BST: Eurozone consumer and business confidence survey for August
  • 1pm BST: German inflation data for September - CPI expected to fall to -0.1%
 

Leave a Comment

Required fields are marked *

*

CAPTCHA

*